COURT FILE NO.: 11192/00A

COURT FILE NO.: 17470/11

COURT FILE NO.: 17719/11

DATE: 2013-07-18

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Three Hundred Pine Street North Ltd.

Plaintiff

-and -

Pine Street Murb Inc., A.T. Cornell, Mark McCormick, Denis J.H. Carriere, Mel W. McCormick, Roger Denommee,

Jaacqueline Clare, Garry Sullivan, Andy Humber, Raoul N. Nelson, Arthur W. Mick, Harold R.D. Dredhart, Douglas Cramer, Estate of Clifford Cornell, Estate of Florence Reid, Ruth Wiwchar, Robert G. Boyd and Tim-Tex Developers Ltd..

Defendants

COURT FILE NO.: 11192/00A

Daniel Condon, for the Plaintiff

Marc Huneault, for the Defendants Mark McCormick, Denis J.H. Carriere, Mel W. McCormick, Jacqueline Clair, Any Humber, Raoul N. Nelson, Arthur W. Mick, Douglas Cramer, Estate of Florence Reid, Ruth Wiwchar and Robert G. Boyd

Kenneth Alexander, for the Defendant Pine Street Murb Inc.

-and-

Pine Street Murb Inc., A.T. Cornell, Mark McCormick, Denis J.H. Carriere, Mel W. McCormick, Roger Denommee,

Jaacqueline Clare, Garry Sullivan, Andy Humber, Raoul N. Nelson, Arthur W. Mick, Harold R.D. Dredhart, Douglas Cramer, Estate of Clifford Cornell, Estate of Florence Reid, Ruth Wiwchar, Robert G. Boyd

Plaintiffs by Crossclaim

and by Counterclaim

Marc Huneault, for the Plaintiffs by Crossclaim and by Counterclaim Mark McCormick, Denis J.H. Carriere, Mel W. McCormick, Jacqueline Clair, Andy Humber, Raoul N. Nelson, Arthur W. Mick, Douglas Cramer, Estate of Florence Reid, Ruth Wiwchar and Robert G. Boyd

Kenneth Alexander, for the Plaintiff by Crossclaim and by Counterclaim Pine Street Murb Inc.

-and-

Estate of Clifford Cornell and Tim-Tex Developers Ltd.

Defendants by Crossclaim

-and-

Donald Reid, Michael Dobson carrying on business as Dobson & Reid, Donald Reid in his personal capacity and John Spina

Third Parties

Daniel Condon, for the Defendants by Crossclaim

Muriel Moscovich, for Third Parties Donald Reid, Michael Dobson carrying on business as Dobson & Reid and Donald Reid in his personal capacity

Daniel Berstein, for the Third Party John Spina

AND BETWEEN

Morgan Cornell and Barclay Cornell in their capacities as Executors and Trustees under the Last Will and Testament of Clifford J. Cornell, Deceased and Three Hundred Pine Street North Limited

Applicants

-and-

Pine Street Murg Inc., Mark McCormick, Denis J.H. Carriere, Mel W. McCormick, Jacqueline Clare, Andy Humber, Raoul N. Nelson, Arthur Mick, Harold R.D. Dredhart, Douglas Cramer, The Estate of Florence Reid, Ruth Wiwchar and Robert G. Boyd

Respondents

AND BETWEEN

Mark McCormick, Denis J.H. Carriere, Mel W. McCormick, Jacqueline Clare, Andy Humber, Raoul N. Nelson, Arthur Mick, Douglas Cramer, The Estate of Florence Reid, Ruth Wiwchar and Robert G. Boyd

Applicants

-and-

Morgan Cornell and Barclay Cornell in their capacities as Executors and Trustees under the Last Will and Testament of Clifford J. Cornell, Deceased and Three Hundred Pine Street North Limited

Respondents

-and-

DONALD REID and JOHN SPINA

Intervenors

COURT FILE NO.: 17470/11

Christopher A.L. Caruana, for the Applicants Three Hundred Pine Street North Limited/Cornells

J.Kenneth Alexander, for the Respondent Pine Street Murb Inc.

Marc Huneault, for the Respondents Mark McCormick, Denis J.H. Carriere, Mel W. McCormick, Jacqueline Clair, Andy Humber, Raoul N. Nelson, Arthur Mick, Douglas Cramer, Estate of Florence Reid, Ruth Wiwchar and Robert G. Boyd

COURT FILE NO.: 17719/11

Marc Huneault, for the Applicants

Christopher A.L. Caruana, for the Respondents

HEARD: January 29, 30 and 31, 2013 and February 5 and 6, 2013 in Sudbury, Ontario

REASONS ON MOTION

Cornell J.:

[1] If something seems too good to be true, then it usually is. The wisdom contained within this old adage has undoubtedly gained new meaning for the various individuals (“the Investors”) who invested in Pine Street Murb (“the MURB”).

Background

The MURB

[2] In 1974, the federal government made changes to the income tax regime, enabling individual taxpayers to shelter their income by claiming capital cost allowances from qualifying investments in real estate. A form of real estate development known as a “MURB” (Multiple Unit Residential Building) emerged as a result of this new policy direction to assist in the creation of affordable residential housing.

[3] In the early 1980’s, Clifford J. Cornell (“Mr. Cornell”), an experienced realtor and developer in the Timmins area, prepared and distributed an Offering Memorandum to establish a MURB in a 35-unit apartment building which was owned by a corporation he controlled. He placed newspaper advertisements which promoted this investment opportunity in glowing terms, including an assurance to potential investors that the investment would be “carefree”.

Investor Commitment

[4] The MURB came into existence on December 31, 1983. Each investor was to acquire an interest in the MURB for the sum of $68,272. This amount was to be satisfied by a down payment in an amount of $3,388 at the time of subscription, an annual payment of $2,797 declining in various amounts to $601 over an eight year period (total payments $14,884) together with a mortgage in the amount of $50,000 bearing interest at 13.5% The balance of $14,884 owing by the Investors to the plaintiff was secured by a promissory note.

[5] The MURB units were sold in two stages, known as Phase I and Phase II. There were some minor differences in the amounts paid for Phase I and Phase II units.

Power of Attorney

[6] The Investors were required to sign a Power of Attorney in favour of Mr. Cornell. All of the documentation associated with the establishment and operation of the MURB including the Joint Venture Agreement, Cash Flow Guarantee, Rental Management Agreement and the Actual Amount Agreement, personal guarantees from the Investors, as well as the title documents including the deeds, mortgages and mortgage amending agreements were signed on behalf of the Investors by Mr. Cornell pursuant to the Power of Attorney in his favour.

Registered Title

[7] The property which comprises the MURB was transferred from the plaintiff to the plaintiff as to an undivided 14/35^th interest and to 534140 Ontario Inc., in trust, as to an undivided 21/35^th interest pursuant to a transfer dated December 30, 1983 and registered on April 5, 1984. The land transfer tax affidavit indicates that the consideration for that transfer was $924,735 including $21,000 for chattels. The transfer was registered as instrument number C317058.

[8] Immediately after the registration of transfer C317058, a mortgage dated December 30, 1983 in the amount of $2,000,000 was granted from 534140 Ontario Inc., in trust to the plaintiff. This mortgage was registered on April 5, 1984 as instrument number 317059. The mortgage is confined to the mortgagor’s undivided 21/35^th interest in the MURB property.

[9] By Articles of Amendment effective January 16, 1984, the name of 534140 Ontario Inc. was changed to Pine Street Murb Inc.

[10] On April 2, 1985, a second transfer was registered from the plaintiff as to an undivided 14/35^th interest and from 534140 Ontario Inc., in trust, as to an undivided 21/35^th interest to Pine Street Murb Inc., in trust. This transfer was registered as instrument number C328779. The land transfer tax affidavit indicates that the total consideration was $616,490 inclusive of chattels having a value of $14,000.

[11] Both transfers number C317058 and C328779 were signed on behalf of the transferors by Clifford J. Cornell.

Existing Encumbrances

[12] At the time of the registration of these transfers, there were existing mortgages registered on title. Instrument number C252817 was a mortgage dated September 14, 1977 in favour of Federal Trust Company in an amount of $968,658.75. This mortgage was registered as instrument number C252817 on October 26, 1977.

[13] A second mortgage in an amount of $174,515 in favour of Central Mortgage and Housing Corporation was registered on the June 20, 1978.

[14] Although both of these mortgages were in existence at the time of the conveyances to 534140 Ontario Inc. and Pine Street Murb Inc., no mention of them is made in either land transfer tax affidavit.

The Agreement Amending Charge

[15] By instrument number C385106, an Agreement Amending Charge was registered on June 30, 1989. Both 534140 Ontario Inc., in trust, as to an undivided 21/35^th interest and Pine Street Murb Inc., in trust, signed the Amending Agreement on behalf of the mortgagors. This Amending Agreement was signed by C.J. Cornell on behalf of both the mortgagors and mortgagee.

[16] This agreement amended the terms the plaintiff’s mortgage by reducing the principal amount from $2,000,000 to $1,750,000. The plaintiff agreed to be responsible for repayment of the existing first and second mortgages. Various other changes, including a reduction in the amount of the monthly payments and a right to renew the mortgage upon maturity on December 31, 1988 were included in a schedule which forms part of the Amending Agreement. Of particular note is a clause that provides that upon maturity, the mortgage was to be renewed on December 31, 1988 on the same terms and conditions “save and except that the interest rate shall be equal to two and one half percent (2.5%) per cent per annum above the prime lending rate charged by the Royal Bank of Canada to its best corporate customers.”

Mortgage Financing

[17] Each Investor was responsible for securing the balance of the purchase price in an amount of $50,000, with the result that the mortgage for all thirty-five units would total $1,750,000. No explanation was proffered as to why the original mortgage C317059 in favour of the plaintiff was in a principal amount of $2,000,000. This may be of no consequence in view of the Agreement Amending Charge C385106 which reduced the principal to $1,750,000, but that remains to be determined.

Mortgage Renewals

[18] In 1989, a renewal agreement in favour of the plaintiff was registered as instrument number C385402. The mortgage was to mature on December 31, 1993. No specific right of renewal was contained within this agreement.

[19] Mr. Cornell sent a letter dated September 23, 1999 to each of the Investors wherein he stated that the plaintiff’s mortgage “expires in December, 1999 and the company requires repayment of the principal outstanding in the amount of $1,041,000.”

Existing Encumbrances

[20] At the risk of understatement, the financial arrangements which were made for the MURB were unconventional. At the time that the apartment building in question was transferred to the MURB, there were prior first and second mortgages in favour of Federal Trust Company and Central Mortgage and Housing Corporation respectively. These existing encumbrances were permitted to remain in place.

[21] There is no suggestion that any of the Investors were aware of the assumption of this financing at the time of the creation of the MURB as all of the MURB documentation signed on behalf of the Investors was signed by Mr. Cornell using the power of attorney in his favour.

[22] It would appear as if these existing encumbrances were replaced by a new mortgage in an amount of $800,000 in favour of Scotia Mortgage Corporation pursuant to mortgage C399175, which was registered on June 29, 1990.

[23] The mortgage in favour of the plaintiff was postponed in favour of the Scotia Mortgage Corporation pursuant to a Postponement Agreement, which was registered as instrument number C399176 on June 29, 1990. The result was that the mortgage in favour of Scotia Mortgage Corporation became a first charge on the MURB property and the plaintiff`s mortgage became a second charge.

[24] The Scotia mortgage was renewed in May of 1994. At that time, it had an outstanding principal of $693,551.47.

[25] The Scotia mortgage was further renewed on September 17, 1997. The principal stated to be outstanding at that time was $548,279.29. This renewal agreement provided that the charge in favour of Scotia Mortgage Corporation would mature on February 1, 1998.

[26] There are no further renewal agreements registered in favour of Scotia Mortgage Corporation. The Scotia Mortgage Corporation mortgage was discharged on February 19, 2010 by instrument number CB61153.

Joint Venture Agreement

[27] Pine Street Murb Inc. and the various Investors entered into a Joint Venture Agreement dated December 30, 1983. Pine Street Murb Inc. is stated to be a trustee. Each Investor is individually referred to as a “member”.

[28] This agreement recites that Pine Street Murb Inc., as trustee, is to hold title on behalf of the members of the “Joint Venture Project” on the terms and conditions set out in the agreement.

[29] It is readily apparent from this agreement that Pine Street Murb Inc. was to have no beneficial interest in the MURB and was to act as a trustee only on behalf of the members/Investors.

[30] Mr. Cornell executed the Joint Venture Agreement on behalf of Pine Street Murb Inc. and each individual Investor.

The Cash Flow Guarantee

[31] In keeping with the concept that the MURB could be a “carefree” investment, Mr. Cornell made arrangements for a “cash flow guarantee” to be provided to the Investors. A Cash Flow Agreement dated December 30, 1983 provided that the cash flow guarantee would continue until December 30, 1991. This agreement made the plaintiff responsible for all MURB financial losses until the MURB attained a cash-flow positive position. This Cash Flow Agreement was signed by Mr. Cornell on behalf of the plaintiff (who was purportedly providing the cash flow guarantee) and by Mr. Cornell on behalf of the Investors using the power of attorney which he had received from them. The evidence suggests that the Investors were not made aware of the existence or actual terms of the Cash Flow Agreement until sometime after December 2000 when this foreclosure action had been commenced.

[32] The concern now raised by the Investors lies in the fact that the Offering Memorandum projected that the MURB would be in a cash flow positive position within eight years, but that if it was not, the cash flow guarantee would continue until such time as the MURB had attained that status.

[33] Mr. Cornell sent letters to the Investors in 1993 and September of 1999 indicating that the MURB had become cash flow positive, but he apparently did not press the issue, as the plaintiff continued to be responsible for the MURB’s losses until December 2000 when arrangements were made for this foreclosure action to be brought.

[34] It is the position of the Investors that the MURB was not in a proper cash flow positive position until 2010. The Investors further contend that if the financial statements show a cash flow positive position prior to that date, such position is as a result of Mr. Cornell’s failure to properly repair and maintain the building in contravention of his management obligations, by Mr. Cornell declining to take payment of the management fees to which he or one of his corporations were entitled, or by some form of improper accounting.

Rental Management Agreement

[35] 543140 Ontario Inc., in trust, and the plaintiff also entered into a Rental Management Agreement, dated December 30, 1983. Under this agreement, the plaintiff was to assume all property management duties including receipt of rental income, payment of property expenses and basic upkeep and maintenance.

[36] The plaintiff was to receive an annual management fee of 6.5% of the gross rentals collected from the property.

[37] The management agreement was to terminate on December 31, 1991.

Fiduciary Obligations

[38] The net effect of these arrangements is that Mr. Cornell and the corporations controlled by him were mortgagee, mortgagor, officer, director, property manager and power of attorney for the Investors. It was acknowledged by the plaintiff and the estate of Mr. Cornell that the plaintiff and Mr. Cornell stood in a fiduciary position with respect to the Investors.

Financial Structure

[39] It is apparent from reviewing the material that the financial arrangements for the MURB were notional in form and substance. The plaintiff and Mr. Cornell were effectively renting the building back from the Investors such that any losses incurred by the MURB would be of no consequence to them. This arrangement would allow Mr. Cornell to receive funds to service the pre-existing first and second mortgages. This is consistent with the terms of the various agreements which were created, including the Cash Flow Guarantee and the Rental Management Agreement.

Claim for Foreclosure

[40] As mentioned earlier, on September 23, 1999, Mr. Cornell wrote to the Investors indicating that the MURB had attained a cash flow positive status. He went on to make a capital call from each of the Investors. All of this came as a complete surprise to the Investors. The requested capital call payments were not made with the result that in December 2000, the plaintiff issued this claim for foreclosure. This claim showed a principal balance outstanding of $1,041,675.24 together with additional expenses in an amount of $1,133,142.70 for a total of $2,174,817.93.

Change in Control

[41] The Investors assumed control of the MURB on or about April 28, 2001. After taking possession of the MURB’ s books and records, they were astonished to discover that there were no books and records for the MURB up to 1993 and that a separate bank account for the MURB did not exist prior to that date.

[42] Under the Investors control, the MURB stopped making payments on the plaintiff’s mortgage on or about May 1, 2001 and began making payments on the Scotia Mortgage Corporation mortgage, which had a balance outstanding at the time of approximately $432,000. As previously detailed, the Scotia Mortgage Corporation mortgage had replaced the existing first and second mortgages which were on title when the MURB was created.

Legal Issues

Preliminary Observations

[43] When all is said and done, the operative issue appears to be a determination of when the MURB attained a cash flow positive position, if at all. If the plaintiff cannot establish that the MURB was cash flow positive prior to the issuance of the foreclosure claim, the plaintiff would not be permitted to claim additional expenses as the cash flow guarantee would still have been operational per the Offering Memorandum. The mortgage payments under the plaintiff’s mortgage were still being made at the time the foreclosure action was commenced. If the plaintiff had no right to request payment of the additional expenses, then the plaintiff’s mortgage was not in default at the time the foreclosure action was commenced. If this is the case, the claim for foreclosure should be dismissed. The defendants would then be in a position to continue with the counterclaim and crossclaim.

[44] It was generally agreed during the hearing of the motion that the MURB is now worth approximately $2,000,000. If the MURB had become cash flow positive prior to the issuance of the claim for foreclosure with the result that the plaintiff could properly claim Murb losses from the Investors, then it is readily apparent that even today, the plaintiff’s claim will exceed the market value of the MURB.

[45] In view of this, I am directing a reference to address the various issues which have been raised by the pleadings and during the course of argument on the motion.

Mortgage Accounting

[46] This is a foreclosure action. The plaintiff mortgagee is a corporation that was controlled by the late Mr. Cornell. Pine Street Murb Inc. is the registered owner of the MURB and has been named as such in the foreclosure action. The Investors are named as defendants pursuant to personal guarantees given by them in support of the mortgage indebtedness. These personal guarantees of the Investors were drafted and signed by Mr. Cornell pursuant to the power of attorney held by him. The Investors allege that the personal guarantees were given without their knowledge or consent.

[47] The foreclosure claim was issued more than thirteen years ago. Despite this significant passage of time, the plaintiff has never provided an accounting of the amount it alleges is owing under the mortgage in question. The mortgagee’s obligation to account is accurately stated in Marriott and Dunn, Practice In Mortgage Remedies in Ontario as follows:

When parties ask the court to foreclose the rights of the mortgagor, they cannot avoid an inquiry into the amount due for principal money and interest. In taking the account, the substance of the contract should be considered rather than the form of the transaction and the court therefore may make all necessary inquiries to that end.[^1]

[48] Apart from this, the plaintiff was in possession and managed the MURB from its inception on December 31, 1983 until control was assumed by the Investors on April 27, 2001. The Offering Memorandum required the developer to maintain and provide accounting records.

[49] Mr. Cornell signed a Rental Management Agreement on behalf of both the plaintiff mortgagee and the MURB. Under this Rental Management Agreement, the plaintiff received all of the income and was responsible for payment of all of the MURB’s expenses.

[50] Although I have some doubt about this, the Investors take the position that the plaintiff was a mortgagee in possession.

[51] Apart from this, it has been acknowledged that the plaintiff and Mr. Cornell stood in a fiduciary position with respect to the Investors.

[52] For any one of these reasons, the duty of the plaintiff to account is beyond question. Indeed, the plaintiff acknowledges in its factum in the plaintiff’s shareholder oppression application (12719/11), that “an accounting will be required for the purposes of determining the claim of THPS for foreclosure in the Mortgage Litigation.”, but argues that to do so now would be premature. With respect, I disagree. If the plaintiff’s delay in accounting were a disease, it could only be considered to be of epidemic proportion.

Cash Flow Guarantee

[53] The Offering Memorandum projected that the MURB would be in a cash flow positive position within eight years. If the MURB was not so by that date, the cash flow guarantee would continue until such time as the MURB attained that status according to the Offering Memorandum. The Cash Flow Guarantee provides that the guarantee ends on December 30, 1991.

[54] Although after 1991, Mr. Cornell made sporadic attempts to assert that the MURB had attained a cash flow positive status, such efforts were never seriously pursued by him. No accounting was ever provided to support the suggestion that cash flow positive status had been obtained by the MURB and no capital calls were honoured by the Investors.

[55] A finding on the discrepancy between the Offering Memorandum and the Cash Flow Agreement would do much to assist all of the parties to this litigation. As previously mentioned, it may even bring an end to the foreclosure action if the plaintiff is unable to establish that the MURB had attained a cash flow positive position at the time that the claim for foreclosure was issued.

Financial Manipulation

[56] Mr. Cornell did write to the Investors on occasion to assert that the MURB had obtained cash flow positive status. The Investors take the position that if in fact that was the case, the result could only have been brought about as a result of improper financial manipulation by Mr. Cornell or the plaintiff. It is suggested by the Investors that this financial manipulation consisted of the failure to maintain the MURB in a reasonable state of repair, to pay management fees as provided for in the Rental Management Agreement or by improper financial accounting.

[57] If the plaintiff or Mr. Cornell`s estate are able to demonstrate that the MURB had obtained a cash flow positive status at some point in time, it would be necessary to address these issues in order to determine if such status had been achieved as a result of improper financial manipulation.

Mortgage Renewal

[58] In Amending Agreement C385106, a provision was made for Pine Street Murb Inc. to have a right to renew the mortgage on December 31, 1988 as earlier detailed.

[59] The plaintiff’s mortgage was amended pursuant to a mortgage amending agreement which was registered as instrument number C385402 on December 31, 1988. At that time, the principal was stated to be $1,684,537.29. The mortgage continued to bear interest at a rate of 13.5% per annum and required monthly payments in an amount of $19,915.

[60] Although no additional amendment agreement was ever registered, it is acknowledged by the plaintiff, that the plaintiff’s mortgage was amended and renewed for a further five years in 1993. At that time, the interest rate was reduced to 9% per annum. The monthly payments were reduced to $16,133.89. The mortgage was stated to mature on March 1, 2008. This maturity date would be consistent with an amortization period of approximately twenty-five years.

[61] Although undocumented, it would appear that the plaintiff’s mortgage was renewed effective January 1, 1999 with the interest rate to continue at 9% per annum. The Investors point to the Offering Memorandum, which provides that the plaintiff’s mortgage would be renewed at no more than 2.5% above the bank prime rate of interest. They further take the position that by leaving the interest rate at 9% per annum, Mr. Cornell and/or the plaintiff were in breach of their fiduciary obligations and the terms of the Offering Memorandum.

[62] The question also arose about how often the plaintiff’s mortgage should be renewed after January 1, 1999 as there was no current mortgage amending agreement to address this issue. Previous amending agreements stated that the term of renewal was five years. Whether or not this continued to be the case after January 1, 1999 is unclear. The issue is of some importance in view of the continuing trend of reductions in the prime lending rate.

Actual Amount

[63] Among the various agreements which were signed on December 30, 1983 is a two page agreement between 534140 Ontario Inc., in trust, and the plaintiff (“the Actual Amount Agreement”).

[64] This agreement refers to the mortgage dated December 30, 1983 in the amount of $2,000,000 which was subsequently amended to reduce the principal to $1,750,000. This is the mortgage that was to secure a portion of each Investors unpaid purchase obligation in an amount of $50,000.

[65] The operative part of the agreement is as follows:

1. Notwithstanding the execution and registration of a mortgage dated the 30th day of December, 1983 between 534140 ONTARIO INC. IN TRUST and THREE HUNDRED PINE STREET NORTH LIMITED (“the Mortgage”), the parties agree that the Mortgage shall be security only for the actual amount owing to the Mortgagee at any time (the “Actual Amount”) notwithstanding the face amount of the Mortgage.

2. Interest shall be calculated and be payable only on the Actual Amount.

3. The Actual Amount shall include any and all amounts owing to the Mortgagee from the Mortgagor pursuant to any agreement between them and any advances made by one to the other.

4. If the Actual Amount, at any time, is less than the principal and interest of the first and second mortgages referred to in the said Mortgage, the Mortgagor agrees to be responsible for payment only of the Actual Amount plus interest thereon and the Mortgagee hereby agrees to indemnify and save harmless the Mortgagor against any claims, demands, costs and causes of action which may be brought to recover any amount in excess of the Actual Amount plus interest (the Excess Amount`) and the Mortgagee hereby agrees to pay forthwith the Excess Amount.

5. The provisions of this Agreement shall supersede the covenants and provisions of the Mortgage if inconsistent therewith.

[66] On its face, this agreement appears to attempt to provide an indemnity to the mortgagors in connection with the existing first and second mortgages which remained on title at the time the MURB was created.

[67] Whether or not this agreement is of any consequence will ultimately depend upon the accounting provided by the plaintiff in the form of the “Actual Amount” which the plaintiff asserts is outstanding from time to time. This may necessarily involve a determination of the “Actual Amount” which was outstanding under the mortgage at any given point in time.

Legal Status of MURB

[68] The documentation which established the MURB refers to it as a “joint venture” and a “co-tenancy syndicate” consisting of the various individuals who acquired an interest in the MURB. The Investors take the position that the defendant Pine Street Murb Inc. was created to act as a bare trustee for the members of the MURB to hold the registered title to the MURB property. In support of this position, they point to the fact that all of the tax benefits associated with the MURB flowed to the members of the MURB and not to Pine Street Murb Inc. In addition, the word “syndicate” is used throughout the Cash Flow Guarantee.

[69] Apart from this, there is the Joint Venture Agreement described earlier. This document was signed by Mr. Cornell as attorney for all of the Investors. This agreement specifically provides that Pine Street Murb Inc. is a trustee for the members of the joint venture.

[70] The plaintiff and the estate of Clifford Cornell take a different position. As a result, they commenced a shareholder oppression application under the Ontario Business Corporations Act against Pine Street Murb Inc. and the Investors. (Court File No. 17470/11). In response, the Investors brought a shareholder oppression claim against the estate of Clifford Cornell and Three Hundred Pine Street North Ltd. (Court File No. 17719/11).

[71] A determination as to the legal status of Pine Street Murb Inc. may well determine whether these competing shareholder oppression applications can be maintained.

Prior Encumbrances

[72] As previously mentioned, a somewhat unconventional approach was taken at the time that the MURB was created. At that time, there were two outstanding mortgages on the property. Ordinarily, such encumbrances would be discharged at the time of transfer.

[73] In this case, that was not done. Instead, the plaintiff assumed control and management of the MURB pursuant to the Rental Management Agreement. From the revenue which was generated by the sale of the units in the MURB to the Investors and the rental income generated by the MURB, the plaintiff was required by the terms of the mortgage amending agreement to continue to make the payments that were required by the prior encumbrances and when such obligations were replaced by the mortgage in favour of Scotia Mortgage Corporation.

[74] When the Investors assumed control of the MURB in April of 2001, they ceased making payments under the mortgage in favour of the plaintiff, but continued to make the payments that were required under the Scotia Mortgage Corporation mortgage. The Investors take the position that it was not until the Scotia Mortgage Corporation was paid off in 2010 that the MURB attained a cash flow positive status.

[75] As part of any accounting, it will be necessary to determine the amount that was owing under the Scotia Mortgage Corporation Charge Number 399175 as of April 30, 2001, the date when the Investors took control of the MURB. It will also be necessary to determine what the MURB was required to pay in order to satisfy the mortgage in favour of Scotia Mortgage Corporation and any other non-Murb obligations which had been created by the plaintiff or Mr. Cornell.

Non-Payment for Units

[76] The MURB records disclose that C.J. Cornell, A.T. Cornell, John Nora and Tim-Tex Developers Ltd. held ownership interests in the MURB.

[77] After taking control of the MURB and reviewing what records were available, the Investors discovered documentation which suggested to them that these individuals did not pay for their respective interests in the MURB.

[78] It is necessary that a determination be made whether C.J. Cornell, A.T. Cornell, John Nora and Tim-Tex Developers Ltd. paid for their shares in the MURB.

[79] If it is determined that one or more of them did not pay for their interest in the MURB, then it will be necessary to determine how that fact would affect the principal amount actually advanced under the plaintiff`s charge as well as the principal amount outstanding from time to time under that charge. This may well involve a consideration of the “Actual Amount” as that phrase is defined and used in the Actual Amount Agreement.

Mortgage Reference

[80] Rule 64.08(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 states that Rule 55 applies to a reference in an action for foreclosure. Rule 55 deals with the specific procedure to be followed on the reference.

[81] Rule 54 deals with references generally. This rule provides:

Reference of Whole Proceeding or Issue

54.02 (1) Subject to any right to have an issue tried by a jury, a judge may at any time in a proceeding direct a reference of the whole proceeding or a reference to determine an issue where,

(a) all affected parties consent;

(b) a prolonged examination of documents or an investigation is required that, in the opinion of the judge, cannot conveniently be made at trial; or

(c) a substantial issue in dispute requires the taking of accounts. R.R.O. 1990, Reg. 194, r. 54.02 (1).

Reference of Issue

(2) Subject to any right to have an issue tried by a jury, a judge may at any time in a proceeding direct a reference to determine an issue relating to,

(a) the taking of accounts;

[82] It is trite law that in a foreclosure action, a mortgagee has an obligation to establish the amount owing under the mortgage in question. Given the mortgagee’s refusal to provide such accounting, it is appropriate that a reference be directed for this purpose.

[83] For the reasons outlined in this decision, it is readily apparent that there are a host of issues which need to be determined in order for this accounting to be provided. The documentation in these proceedings currently fills five bankers’ boxes. It is my opinion that the investigation which is required on these facts and the prolonged examination of the documents which could include the review of several decades worth of accounting records is an exercise that cannot conveniently be made at trial.

In view of this, it is my considered opinion that the appropriate way to deal with the mortgage accounting and the issues associated with it is by a reference.

Stay of Proceedings

[84] The foreclosure action has languished since the claim was issued in December 2000. Mr. Cornell died in 2007, with the result that his estate trustees are now required to proceed on behalf of his estate. In 2011, a shareholder oppression claim was brought against the Investors, who promptly responded with an oppression claim of their own.

[85] Some ten days of cross-examinations and discovery involving five separate counsel have been scheduled for ten days in February and April 2013. All counsel conceded that the costs associated with such cross-examinations and discovery would be significant.

[86] The oppression claims involve, to a large degree, the same areas of dispute which exist in the foreclosure action. All counsel agreed that at the end of the day, these various proceedings are all about money: who owes what to whom and in what amount?

[87] Among other things, it is my job as Case Management Judge to see that the dispute between the parties is brought to a conclusion in a timely fashion and that in so doing, the court system’s resources are put to efficient and effective use. Being mindful of my responsibility and these considerations, I hereby order a stay of all proceedings in the foreclosure action and the shareholder oppression applications, except for the continuing obligation to provide disclosure in accordance with the requirements of Rule 30.07 and except for any steps which must be taken to comply with the order directing a reference and the conduct of the reference itself.

Draft Order

[88] On February 8, 2013, I prepared and circulated a draft order to attempt to avoid any further delay in these proceedings and in an effort to maintain the timetable which had been discussed and agreed to at the time the motion was argued.

[89] There was considerable delay in settling the terms of the order with the result that this was only recently done during a telephone conference conducted by me.

[90] I confirm that the terms of the final order have now been settled and approved by all counsel.

[91] Order accordingly.

Mr. Justice R. Dan Cornell

Released: July 18, 2013

COURT FILE NO.: 11192/00A

COURT FILE NO.: 17470/11

COURT FILE NO.: 17719/11

DATE: 2013-07-16

BETWEEN:

Three Hundred Pine Street North Ltd.

– and - Plaintiff

Pine Street Murb Inc., et al

Defendants

• and -

Pine Street Murb Inc., et al

Plaintiffs by Crossclaim and by Counterclaim

-and-

Estate of Clifford Cornell and Tim-Tex Developers Ltd.

• and - Defendants by Crossclaim

Donald Reid, et al

Third Parties

REASONS ON MOTION

Cornell J.

Released: July 18, 2013

[^1]: Marriott and Dunn, Practice and Mortgage Remedies in Ontario, 5th Edition, Volume 3, para. 10.1 at pg. 10-2